38 million disabled Americans, or 1-in-10, live with severe disabilities.

Payments are modest:

As of December 2016, Social Security paid an average monthly disability benefit of $1,171.15. That’s barely enough to keep a beneficiary above the poverty level ($12,060 annually).

What is Social Security Disability Income (SSDI)?

Social Security disability is a social insurance program under which workers earn coverage for benefits, by working and paying Social Security taxes on their earnings. The program provides benefits to disabled workers and to their dependents. For those who can no longer work due to a disability, our disability program is there to replace some of their lost income.

What is Supplemental Security Income (SSI)?

Supplemental Security Income (SSI)is a Federal income supplement program funded by general tax revenues (notSocial Security taxes) to help aged, blind, and disabled people, who have little or no income; and provide cash to meet basic needs for food, clothing, and shelter.

SSDI vs. SSI

Social Security Disability Insurance

Supplemental Security Income

Payments come from the Social Security trust funds and are based on a person’s earnings.

Payments come from the general treasury fund, NOT the Social Security trust funds. SSI payments are not based on a person’s earnings.

An insurance that workers earn by paying Social Security taxes on their wages.

A needs-based public assistance program that does not require a person to have work history.

Pays benefits to disabled individuals who are unable to work, regardless of their income and resources.

Pays disabled individuals who are unable to work AND have limited income and resources.

Benefits for workers and for adults disabled since childhood. Must meet insured status requirements.

Benefits for children and adults in financial need. Must have limited income and limited resources.

A Roth IRA may be an option for grandparents to consider when saving for retirement and while also saving for their grandchildren’s education. The Roth IRA allows account owners to save with tax-free growth* and with the added flexibility to allocate and use the funds when they choose and for any purpose.

What is a Roth IRA:

A Roth IRA is a retirement account funded with after-tax dollars. The contributions generally are not tax deductible but when you start withdrawing funds, qualified distributions are tax-free.

Defining characteristics of a Roth IRA:

The money invested in a Roth grows tax-free*.

Contributions can continue to be made once the taxpayer is past the age of 70½, as long as he or she has earned income, which may be basically defined as W2 income.

Eligibility for a Roth account depends on taxable income. Generally, in 2018 you are eligible if :

you are a couple filing jointly and your MAGI (modified adjusted gross income) is less than $189,000.

you file as an individual and your MAGI is $133,000.

Contribution amounts: In 2018 an individual may make an annual contribution of up to $5,500 to a Roth IRA. Individuals who are age 50 and older by the end of the year for which the contribution applies can make additional catch-up contributions (up to $1,000 in 2018). An individual may also establish a Roth IRA for their spouse with little or no income.

The taxpayer can maintain the Roth IRA indefinitely; there is no required minimum distribution (RMD) during the account holder's lifetime.

* Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.

Case Study

John and Alice (fictional names) are grandparents of 2 grandchildren, one of whom has special needs. John and Alice have $10, 000/year to contribute toward their retirement savings should an emergency or unforeseen need arise. They also want the opportunity to put these funds toward the goal of funding their grandchildren’s educational expenses and don’t want to miss this opportunity to save for them should the unforeseen or emergency never happen.

Their first thought was to establish a 529 plan & ABLE account for each of their grandchildren. However, while John and Alice feel saving for college is an important goal toward which they want to contribute, they need and want flexibility and control over these funds. Their grandchildren may opt not go to college or John and Alice may have an unforeseen need come along for which they would use this savings.

In meeting with John and Alice and discussing this goal, we suggested another alternative: establishing and funding a Roth IRA. This alternative is open to John and Alice as they both have earned income, file taxes jointly and do not exceed the $189,000 combined household maximum income threshold for Roth IRA contributions. There is no age limitation on opening or contributing to a Roth IRA.

The benefits of saving the $10,000/year in a Roth IRA are tax-free growth, with no limitations on use of funds or withdrawal rules( with exceptions noted above- see *). John and Alice may each contribute up to $5500/ year to a Roth IRA. Today they feel as though they can afford to give their grandchildren money for their futures, but ideally John and Alice would like the option to have the money available to them if there was an unforeseen need. Should they have additional grandchildren, having the money in the Roth IRA can make it easier to distribute the money amongst all grandchildren.

Potential drawbacks to using this approach might occur if the funds were left in the account and John and Alice required nursing care. This savings would be considered in their assets and also, should they pass away, this account would be included as a part of their estate assets. To control disposition of the assets upon their death, they may designate their children or grandchildren as beneficiaries of the account.

When making the decision of how best to save for your grandchild’s future, recognize that every family’s situation is different and that will have an impact on the final decision regarding the best savings option to consider.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for individualized tax advice. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes. Please consult tax advisor regarding your specific situation.The Roth IRA offers tax deferral on any earnings in the account. Future tax law can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.The experiences described here may not be representative of any future experience of our clients, nor considered a recommendation of the advisor’s services or abilities or indicate a favorable client experience. Individual results will vary.

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We congratulate our colleague John Nadworny for being a resource for and quoted in an article about financial planning for people with special needs in Saturday’s New York Times (March 28, 2015). To read the article, click here.

We include the following disclosure as we do not control the information in this article. The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual, nor intended as tax or legal advice. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes. Investing involves risk including loss of principal.

Prior to investing in an ABLE account investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's ABLE program. Please consult with your tax advisor before investing.

Note that when distributing for non-qualified expenses, the pro-rata portion of the earnings attributable to the non-qualified expenses are subject to tax plus a 10 percent penalty.

Insurance guarantees are based on the claims paying ability of the issuing company. Individual results will vary.

There are many ways to discuss your vision and your finances. It is often easiest to begin this process in a gradual manner and in an informal environment. Although it is important to have all family members in agreement, scheduling initial discussions in a formal meeting or large family setting is not always the best.

We recommend speaking to one child at a time, to get their feelings about their willingness to help. This will give them the opportunity to share ideas with you rather than you telling them what you hope will happen. Remember, caring for a family member with disabilities is a lifetime commitment that you do not want to force on anyone, yet it is important for them to know your intentions.

After everyone has had an opportunity to discuss their feelings and ideas in an informal way, you may wish to plan a discussion with everyone at once. Since every family’s dynamics are unique, you will find the best way to communicate with your family.

The following steps should help to move the communication process along smoothly:

Share your vision

Talk about the amount of money you plan to have available to support your vision. You do not have to reveal all of your financial matters. You can choose to only mention the financial aspects that pertain to the needs of the family member with a disability.

Determine the best person to take on each role. For example, who is the best with finances? That person may be a good trustee or trust advisor of a Special Needs Trust. Who is most involved in the day to day life of the child? That person may be a good guardian.

Ask family members if they feel able to perform their roles independently. If not,design your plan to give them resources to work with. For example, let them know that they could hire an investment advisor to help with the trust management or a social worker to help oversee supports.

In our combined 30-plus years of planning, one of the biggest obstacles that we have encountered is that people do not feel comfortable talking about how much money they have. Even professionals in the field of providing services to families, including government agency employees that serve families, do not feel comfortable talking about money or the specific costs of providing services to individuals with disabilities.

SNP STORY:

Although Charles is receiving all the benefits that he is eligible for and living independently, we feel that it is not enough for him to simply have what the government provides. We supplement his expenses by about $1,000 a month. This gives him the sense of self-worth and control to be able to do what he likes rather than do what someone else wants him to do. He has schizophrenia and his sense of self-worth is most important to his ability to function in life. In working with our financial planner and our attorney, we made arrangements for our other son to provide this supplement to support Charles’ needs without jeopardizing his government benefits when we are no longer able to.

-- Charles’ father

Sometimes parents feel that they must treat all of their children equally. They feel that their children expect it. However, in many cases children without disabilities are more than willing to forego any type of inheritance to guarantee security for their brother or sister with a disability. They understand the financial realities and would rather make sure their brother or sister is taken care of and would not expect that everything is shared equally.

One of the first steps that is required for you to be able to achieve financial security for your child is to overcome the reluctance to discuss the issues of money. We all know it takes money to provide services, staff, housing expenses, employment supports, transportation, education, health care services and the like. We also know that the government does not have an endless supply of money to fund these services.

So how do we determine how much money is needed? And how much is too much? Just as the educational needs of every child are unique, so are the long-term planning needs of every individual with special needs. Even two individuals with a similar medical and/or cognitive diagnosis, can have significantly different support requirements. With these varying requirements, costs will also vary. There is no clear answer; the best we can do is to maximize all resources and coordinate all of the Five Factors.That is why it is so important to have a comprehensive plan and to reevaluate it periodically.